Capturing the value of MedTech ingenuity

A vastly different business climate

​The race for market share during the last decade is increasingly becoming a race to protect net revenue and margin. When product innovation was the primary driver of success, Medical Technology (MedTech) companies could increase market share without experiencing downward price pressure.

However, four significant global macro trends in healthcare are putting pressure on prices that can increasingly erode net profit and margins if MedTech companies aren’t prepared.

The following four megatrends will likely continue unabated into the foreseeable future:

1. A relentless drive to contain costs
2. New players are changing the competitive landscape
3. M&A is accelerating
4. Patients as value-conscious consumers

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From setting price to creating pricing strategies

​For years, product and customer profitability have not been a major concern for many MedTech companies. In times of prosperity, customers were king and products and services were often offered below the total cost of bringing them to market. However, as profit margins become the focus, getting pricing basics right should be the first priority of MedTech companies.

To bolster the competitive success of their products, MedTech companies need to create innovative pricing strategies that beat competitors by demonstrating the product’s unique value and providing incentives for customers to continue buying. In our experience, businesses have three levers they can pull to create powerful pricing strategies.

These strategies don’t require wholesale change in each of the three levers. Although pricing strategies can be complicated, they don’t have to be.

Instead, companies can blend innovative techniques with traditional approaches:

1. Pricing structure—how to set the price.
2. Payment model—how to charge customers.
3. Incentives—how to spur growth.

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Three pricing strategies for MedTech companies

The ability to pull different levers of a pricing strategy offers several innovative options. ​Three particularly powerful strategies that MedTech companies could consider are:

1. Outcomes-based pricing: ​Outcomes-based pricing links a product’s price to its ability to achieve specific outcomes such as reduced hospital readmissions, shorter hospital stays, improved surgical results, and/or increased safety.
2. Portfolio pricing: Portfolio-based pricing increases sales by offering incentives to customers when they reach different levels of cross-portfolio spend during a specific time period.
3. Solutions pricing: MedTech companies increasingly see the value of shifting from selling products and absorbing service as a cost to offering solutions for both products and services that the customer values together. MedTech businesses are following two paths to create value through solutions: boosting disease area footprints and offering non-clinical services.

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Move ahead of the pack

​The MedTech market is changing significantly and those changes are underway now. Payers, providers and patients are increasingly demanding that the price of MedTech products have a direct relationship to the value that the product provides. Nontraditional players are making hefty investments and low-cost providers are rapidly expanding their global footprints—all of which will add more downward pressure to prices. M&A activity in the MedTech industry is on the rise and the new entities will have to capture the full value of combined portfolios to justify the valuations to respective investors.

These trends will likely continue to put pressure on prices which can cut into the net profit and margins of MedTech companies that don’t pick up the mantel of pricing innovation. MedTech companies stand at a crossroads: They can wait and let the market define their fortunes, or they can take a leadership role by shaping the market and charting their own destinies.

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